Raising listing fees is a courageous move by the Singapore Exchange, at a time when it is trying to persuade overseas companies to list here. But whether this is the right way to increase cashflow and profitability depends on just one thing: value for money.

The underlying reason for raising fees is the SGX's own need to make more money. It is under pressure from analysts for having limited opportunities to grow revenue. Listing and clearing fees and data generated from the daily course of trading are among its main sources of income. Charging more might dampen volumes, but charging the same as, or even less than before, means it has to constantly focus on increasing volumes. Ideally, it would increase volumes and charge more money for services rendered. But how?

Stock exchanges by their nature have few options by which they can differentiate themselves. Companies want access to breadth and depth of capital. Investors expect a user-friendly, properly regulated and liquid market. Those are givens. The trick is to either offer all of these for less money than other exchanges, or to add more value than other exchanges. By charging higher fees – the SGX says without elaborating that these merely put them on par with the others – it is clearly shooting for the latter.

This is the correct strategy. Already, in its statement announcing what it many cases amounts to a doubling of fees (see table), the SGX points to several initiatives to add value, such as a securities trading module of a new S$20 million trading engine to be launched January 1, 2006, and the Research Incentive Scheme. More such initiatives will be required to assuage companies that the hike in fees is justified. It will be able to measure its success by the number of companies that will come from abroad to list here, the number of top investors who come to trade here, and the resulting greater revenues from higher prices and larger volumes.